Postcards from the Riviera

In this first of a series on investing directly in property in France for Realestateweb, Guy Watson-Smith gives the low-down on "why France", and "why now".
A former Zimbabwean farmer, Watson-Smith now runs a successful business - Azur Accom - that provides investment and rental services on the French Riviera, along with other family members.

Why invest in France?
* France receives more visitors than any other country in the world (fact)!
* With new, improved and cheaper transport, demand for accommodation continues to grow.
* There is increased demand for rental property and decreased supply.
* Low-cost airlines are sustaining demand for property in France.

"Hello" Mr Sarkozy
"The French people have chosen change, and it is change that I will implement" Sarkozy declared during his victory speech. "We will break with the ideas, the habits and the behaviour of the past, in order to get France moving again."
His domestic agenda has three main tenets:
* Hard work. He will disable the 35 hour week.
* Mortgage-interest payments should be deductable, with other measures to diminish the tax burden; and 
* Immigration rules will be tightened.
Discussing the election result, a panellist from Goldman Sachs said: "Shrewd investors bought French stocks about three weeks ago."
There is confidence that the French economy is awaiting take-off as the British economy did after Margaret Thatcher's victory in 1979.
A recent leader in "The Economist" says: "...Europe's economies are now doing so well, with growth rising and unemployment falling and that helps to create a more benign climate in which to make painful reforms.... The big vote for Mr Sarkozy partly reflects a burning desire to make up lost ground after years of under-performance. The firmer he is on taking on unions, insiders, pensioners and others with a stake in today's over-protected system, the greater will be the eventual economic rewards."

Why buy on the Cote d'Azur?
The Riviera has abundant sunshine, superb beaches, beautiful sea, a stunning mountain backdrop, quaint villages, fabulous cuisine, and world-beating golf courses. It's an hour by car to famous ski slopes, and yet is the warmest department in all of France! Cannes is the biggest tourist destination after Paris, and hosted 2,5m visitors in 2006.

Cannes is also the second "congress city" after Paris, with 320 days of congresses in 2006, and 512 032 registered delegates attending 110 different events.

We all know that past performance is not necessarily a reflection of future performance, however the Riviera has been a "Star" for 120 years and the contrast with other heavily marketed "sunshine spots" in Europe is indisputable.

High-tech investment
The Riviera attracts 35% of research and development companies setting up shop in France - ahead of Paris. Americans have invested here since the 1960s: Texas Instruments, Cisco, Nortel, American Express, HP, Accenture and many others.

French tertiary education is excellent - and educated people want to live here! They only go elsewhere if they don't find work on the Riviera.

More specifically?
Travel east of Nice to Villefranche, Monaco, Menton, and west to Antibes and Juan les Pins. In the foothills you have Mougins, St Paul, and Valbonne. All investment intelligence should point you towards Cannes for income-generating investments.

What would I buy?
Many South Africans focus on income-generating units with the ability to increase capital value too. Although rental properties in Cannes are of great interest to investors there is increasing interest in "luxury" apartments and villas. There's a rental market for luxury products, and there are specialists in that market.

How much would I need to start?
There are smaller investment properties for under 150 000€ (click here for a currency conversion), but a one-bedroom apartment now ranges between 250 000€ and 330 000€. A typical investment looks like this:  

Cost of apartment - 300 000€ (includes commissions)
                                  Deposit (30%)                                                         100 000€
                                  Transfer Duty (+/_ 6.5%)                                         19 500€
                                  Consultancy fee (2.5%)                                             7 500€
                                  Some renovations (if required)                                10 000€
                                  Furnishing (if required)                                            12 000€
                                  Investment                                                              149 000€

Can I get credit?
In 2002 the borrowing rate was 4.1%.
In 2005 rates dropped to 2.75%.
Today they're back to just over 4%.

An attractive characteristic in France: the monthly repayment does not change, making budgeting very easy. If rates change the duration adjusts, not the monthly commitment. Borrowing at 4%, partly self-financing through rentals and reaping 15% capital growth, has been a profitable investment option for many.

And capital appreciation in the Cannes area?
From the regional Chamber of Notaries:
Increases in property prices across the region had been 15.5% p.a. in the 14 quarters ending 2004.
In 2005 it was 16.7%.
The winner: the price of land, which rose 17%.
Also emerging from the report:
Since 2000 apartments more than doubled (+123,5%).
In Cannes the increase was 126%.

Appreciation update
The "Observatoire Immobilier" (Property Watchdog) reporting on the first six months of 2007 notes that prices are still increasing. Buyers were paying 5% more on new builds and 10% more on existing buildings compared to the same period last year.
One reason quoted is the shortage of housing.
Nearly 30% fewer new-builds were released in the six months than in same period in 2006, and in July properties for sale were significantly down on January.

* Want to read about a specific property issue? Tell us at news@realestateweb.co.za.

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“All investment intelligence should point you towards Cannes for income-generating investments.”

 

Comments

 

responses to this article

France good value for money This chap is right. Why buy in Clifton, when you can buy in France. Bit of a no-brainer for the wealthy. by Rich dude on November 16 2007, 17:03 Find this comment inappropriate? Report it

I don't think so... http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/03/28/cnfrance28.xml French housing bubble set to burst By Ambrose Evans-Pritchard Last Updated: 1:43am BST 28/03/2007 French property construction . .more plummeted 15.1pc in February and home prices have begun to slip in the first sign that America's housing woes are spreading to Europe. The surprise data came as the US Conference Board's confidence index fell sharply from 111.2 to 107.2, suggesting that housing troubles are starting to unnerve American consumers. The Dow Jones was off 75 points to 12,394 in jumpy trading, while the dollar renewed its downward slide. advertisement French house prices have shot up by 210pc since 1995, compared with 190pc in the US, much to the delight of 180,000 Britons with second homes across La Manche. But after years of double-digit gains the pace slowed to 7.2pc last year and turned negative in January with a fall of 0.6pc. "The market has turned in France, and this is the trailer for the movie we're are going to see across Europe this year," said Jean-Paul Six, chief Europe economist for Standard & Poor's. "I think we will see falling house prices in France in coming months and that is going to cause headlines. It is the delayed effect of rising interests rates, which have already gone up seven times to 3.75pc, and are going up further. Spain, Ireland, Scandinavia, Holland and Italy - as well as Britain - have all enjoyed housing booms, with much of Eastern Europe playing catch-up. The big exceptions have been Germany and Switzerland, where property has been flat for a decade. More than 93pc of mortgages in Spain are on floating rates, making the country vulnerable to Europe's monetary squeeze. "I can see a mortgage crisis building. We have a serious property bubble in this country and everyone is in denial; it's worse than the US" said Manuel Romera, director of Madrid's Instituto de la Empresa. Spanish house prices have jumped 270pc in a decade, even though more houses are being built there than in France, Germany, and Italy combined. The central bank has warned repeatedly that the market is overheating, but it is virtually powerless to stop it after Spain joined the euro and gave up control over monetary policy. France looks subdued, by comparison. Almost all mortgages are on fixed rates, and tough lending rules have prevented the emergence of a US-style sub-prime market. French banks usually restrict lending to 75pc of the home's value. The ratio of household debt to disposable income in France is a modest 65pc, compared with 115pc in Spain, 146pc in Britain, 171pc in Holland, and 190pc in Ireland. Even so, Mr Six said France was vulnerable to an emerging glut of houses after record contruction of 420,000 new homes last year. According to France's OFCE research institute, house prises are 25pc overvalued. "If there is a property crash across the Atlantic, there could be contagion to Europe," it said. . .less by Freelance Mycophagist on November 16 2007, 19:26 Find this comment inappropriate? Report it

It will be a worldwide crash Stop trying to escape it people ... its going down pretty much everywhere ... live with it. by CJ says it was a worldwide bubble on November 16 2007, 20:32 Find this comment inappropriate? Report it

by The facts seem to escape you CJ....property is a great long-term investment. on November 18 2007, 11:02 Find this comment inappropriate? Report it

...when you buy at reasonable prices. Ask the Japanese how their 'long-term investments' are doing. by anonymous on November 19 2007, 08:26 Find this comment inappropriate? Report it

by and the market shows how reasonable the prices currently are. on November 19 2007, 10:44 Find this comment inappropriate? Report it

In the EU certain countries like Spain, Ireland, UK were part of the boom Incorrect analysis just pessimism dude. While if there is a global downtrend, it will have an impact even on the countries that were not involved in the boom, they will not crash by thabo - it acttually was not on November 19 2007, 11:00 Find this comment inappropriate? Report it

Why not grab the high ground... With all of this real estate doom and gloom in these larger trans-Atlantic economic powers, why not grab the high ground? Feast or famine every one wants the proverbial higher ground. by The Red Barron on November 17 2007, 11:06 Find this comment inappropriate? Report it

blinkered vision of some Some people don't understand that you get good and bad property investing decisions. The whole world's property isn't going to go down the tubes....and if there is a problem it isn't going to be forever or everywhere. We all need somewhere to live and as . .more there are so many airlines one assumes tourism is a flourishing industry. Where are those people going to stay? Not in tents. If you want to make money, ignore those who can't see the wood for the trees. . .less by Eyes wide open on November 19 2007, 09:04 Find this comment inappropriate? Report it

Herd mentality doesn't make you money in the long term. Global boom = global bust. by anonymous on November 19 2007, 09:49 Find this comment inappropriate? Report it

by Yes it does. Market is the herd. on November 19 2007, 10:45 Find this comment inappropriate? Report it

I think Warren Bufffett would disagree That is how you end up losing money by thabo on November 19 2007, 10:58 Find this comment inappropriate? Report it

the herd doesn't invest in property in Cannes Or am I missing something? by bimbo - not on November 19 2007, 13:33 Find this comment inappropriate? Report it

My response was to the previous comment Yours is to what exactly by thabo I am mising your point on November 19 2007, 13:44 Find this comment inappropriate? Report it

by WB is part of the herd. The market is made up of many players including contrarians & not just one type of investor/trader. on November 20 2007, 17:10 Find this comment inappropriate? Report it

just another advertorial, in other words... by so you are asking an estate agent his views on property! duh! on November 19 2007, 12:50 Find this comment inappropriate? Report it

Not an advertorial. Its a pump and dump Seriously this reads like the stock spam I get in my mailbox. Read between the lines carefully. New property is increasing slower than old property because the developers are having to discount to sell it. This is also why they are . .more building less. Its a sign no one is buying not that prices are going to go up. . .less by Junkyard on November 19 2007, 13:43 Find this comment inappropriate? Report it

resorting to MNY to try move it !! by Junkyard - good point and probably why they are now on November 19 2007, 16:32 Find this comment inappropriate? Report it

Not really .... Well, if you knew the dynamics driving Property in the South of France (which the author clearly does, he is spot on!) then you would know that in this case it is not the case. It is a highly developed area, with stringent property planning . .more laws. There simply is not the possibiliy nor the space to develop willy-nilly, and hence the dynamic described. . .less by Earl E Raines on November 19 2007, 18:05 Find this comment inappropriate? Report it

Please don't put this on your website we don't want you violent horrible South Africans in our count... by Senhor on November 19 2007, 13:36 Find this comment inappropriate? Report it

If you have money to squander it's easy if not check legislation and costs by ea on November 20 2007, 09:57 Find this comment inappropriate? Report it

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